KUALA LUMPUR (Aug 5): Maybank Investment Bank Bhd (Maybank IB) believes that Malaysia is currently undergoing its third investment upcycle.

It said the combined private and public investments share of gross domestic product (GDP) picked up from the recent post-pandemic low of 19.7% in 2022, to 21.3% in the first quarter of 2024 (1Q2024).

In a note on Monday, Maybank IB said the previous two investment upcycles saw gross fixed capital formation’s share of the GDP surging from 22.1% in 1987 to 49.2% in 1997, and from 21.7% in 2009 to 26.6% in 2013.

“Investment is on the upswing, as robust approved private sector investment since 2021 is being realised, as per the trend in actual private investment.

“Rising momentum in investment realisation can also be seen from the surge in imports of capital goods — especially machinery and transport equipment, as well as the acceleration of banking system’s loans growth for industrial buildings, factories, land, construction and working capital,” it said.

The investment bank reckoned that the investment upcycle reflects the benefit or payoff from political stability post-15th general election (GE15), foreseeing five drivers or themes — green economy, technology, Johor-Singapore Special Economic Zones (JS-SEZ), infrastructure and government-linked (firms) — in the current wave.

It noted that green investment is driven by the National Energy Transition Roadmap (NETR), where the energy transition financing needs to imply a projected total investment of RM1.2 trillion to RM1.3 trillion over 2023-2050.

Meanwhile, the technology industry investment is central to the New Industrial Master Plan (NIMP) 2030, with the National Semiconductor Strategy (NSS) aiming to attract RM500 billion worth of investments in the high-end semiconductor sector.

Another significant investment area in technology is data centres, with an estimated RM130 billion investment expected between 2024 and 2035.

At the same time, the Iskandar Regional Development Authority (IRDA) expects to attract investments worth RM226.5 billion into Iskandar Malaysia via JS-SEZ between 2024 and 2030.

Maybank IB also foresees enhanced domestic investments by government-linked companies and government-linked investment companies (GLCs/GLICs), with committed investments in domestic capital markets totalling RM440 billion and RM120 billion in domestic direct investments (DDI) over the next five years.

Historically, investment upcycles have led to sustained multi-year GDP growth, double-digit growth in construction, and above-trend consumer spending, it said.

Inflation and the ringgit also saw upward trends during these periods.

“However, note that inflation is also driven by a multitude of dynamics, such as internal and external cost-push factors (such as subsidy removal/rationalisation; minimum wage hikes; global commodity prices), currency movements, as well as the more recent ‘shocks’ such as geopolitics and pandemic, causing supply chain disruptions and inefficiencies,” it said.

As for the ringgit, Maybank IB said the currency tends to appreciate versus the US dollar during the investment upcycle periods.

In the first investment upcycle period, the currency appreciated from a low of 2.7960 on June 13, 1991, to a high of 2.4365 on June 21, 1995; a gain of 14.8%.

In the second investment upcycle period, the local unit rose by 26.8%, from a low of 3.728 on March 2, 2009, to a high of 2.939 on July 27, 2011.

“Currently, the ringgit is on an uptrend, as it closed at 4.4970 against the greenback on Aug 2, 2024; up 6.7% from this year’s low of 4.7987 on Feb 20, 2024.

“The local note is supported by improving market sentiments, amid strengthening domestic economic performance and macro fundamentals, as well as the prospect of the start of the United States Federal Reserve’s interest rate cuts cycle in September,” it said.

At 11.32am on Monday, the ringgit rallied to 4.4000/4150 against the US dollar, marking its 11th consecutive day of an uptrend.